Chapter 13 Bankruptcy Blog Post

Pitfalls of a Pawned Vehicle in a Chapter 13 Case: Part I

One of the major benefits of filing a Chapter 13 case is the ability to modify (cram-down) a loan on a motor vehicle. Circumstances vary by case, but when a client has purchased a vehicle and has signed a standard "Retail Installment Contract", generally the interest rate and principal balance can be modified (cram-down) and in most cases, the monthly payment to the lender through the Chapter 13 plan can be significantly reduced for an across-the- board saving for the client.

The same result ("cram-down") also could be obtained if the client earlier paid off the vehicle, but later found it necessary to use the vehicle as collateral to obtain a loan from another lender. In each case, the client would retain title to the vehicle and, at most, the lender would have only a security interest or "lien" on the vehicle. In each of these situations, our experienced bankruptcy attorneys could walk that client through the "cram-down" analysis and show that client how he or she would benefit.

The other option: a pawn transaction

On the other hand, if you enter into a "pawn transaction", Georgia law permits you to pledge a motor vehicle by giving the "pawnbroker" possession of the certificate of title. As a result, although you continue to operate the vehicle, the pawnbroker has legal title to the vehicle and also is considered to legally have possession of the vehicle. To recap, in a pawn transaction, you have agreed to pledge (think "conditional sale") the vehicle on the condition that the vehicle may be redeemed or repurchased by you for a fixed price within a fixed period of time set out in the pawn contract. The contract establishes a maturity date for the payment of the principal amount due plus interest and other charges unless the parties agree in writing to extend or continue the maturity date.

If a motor vehicle is pledged, Georgia law allows you to have an additional 3D-day "grace period" after the maturity date to redeem (or repurchase) the vehicle. A pledged vehicle not redeemed within the grace period is automatically forfeited to the pawnbroker. Contact one of our experienced attorneys to discuss your situation.

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